Selecting the optimal communications mix

The promotion element of an Internet marketing plan requires four important decisions about investment for the online promotion or the online communications mix.

1 Investment in promotion compared to site creation and maintenance

Since there is a fixed budget for site creation, maintenance and promotion, the e-marketing plan should specify the budget for each to ensure there is a sensible balance and the promotion of the site is not underfunded. The amount spent on maintenance for each major revision of a web site is generally thought to be between a quarter and a third of the original investment. The relatively large cost of maintenance is to be expected, given the need to keep updating information in order that customers return to a web site. Figure 8.22 shows two alternatives for balancing these three variables. Figure 8.22(a) indicates a budget where traffic-building expenditure exceeds service and design. This is more typical for a dot-com company that needs to promote its brand. Figure 8.22(b) is a budget where traffic-building expenditure is less than service and design. This is more typical for a traditional bricks-and-mortar company that already has a brand recognition and an established customer base.

Figure 8.22 Alternatives for balance between different expenditure on Internet marketing

Analysis by Kemmler et al. (2001) of US and European e-commerce sites provided a cross-industry average of the spend on different components of Internet marketing. The top performers achieved an average operating profit of 18%. Costs were made up as follows:

A balance must be struck between these techniques. Figure 8.23 summarises the tactical options that companies have. Which do you think would be the best option for an established company as compared to a dot-com company? It seems that in both cases, offline promotion investment often exceeds that for online promotion investment. For existing companies, traditional media such as print are used to advertise the sites, while print and TV will also be widely used by dot-com companies to drive traffic to their sites.

Varianini and Vaturi (2000) have suggested that many online marketing failures have resulted from poor control of media spending. The communications mix should be optimised to minimise the cost of acquisition. If an online intermediary has a cost acquisition of £100 per customer while it is gaining an average commission on each sale of £5 then, clearly, the company will not be profitable unless it can achieve a large number of repeat orders from the customer.

We have reviewed a wide range of techniques that can be used to build traffic to web sites. Agrawal et al. (2001) suggest that e-commerce sites should focus on narrow segments that have demonstrated their attraction to a business model. They believe that promotion techniques such as affiliate deals with narrowly targeted sites and e-mail campaigns targeted at segments grouped by purchase histories and demographic traits are 10 to 15 times more likely than banner ads on generic portals to attract prospects who click through to purchase. Alternatively, pay-per-click ads on Google may have a higher success rate.

4 Investment in digital media and digital creative

As with traditional media, there is a tension between spend on the advertising creative and the media space purchased to run the executions. There is a danger that if spend on media is too high, then the quality of the execution and the volume of digital assets produced will be too low.

Marketing managers have to work with agencies to agree the balance and timing of all these methods. Perhaps the easiest way to start budget allocation is to look at those activities that need to take place all year. These include search engine registration, link building, affiliate campaigns and long-term sponsorships. These are often now outsourced to third-party companies because of the overhead of retaining specialist skills in-house.

Other promotional activities will follow the pattern of traditional media-buying with spending supporting specific campaigns which may be associated with new product launches or sales promotions: for example how much to pay for banner advertising as against online PR about online presence and how much to pay for search engine registration. Such investment decisions will be based on the strengths and weaknesses of the different promotion online. Table 8.5 presents a summary of the different techniques.

Deciding on the optimal expenditure on different communication techniques will be an iterative approach since past results should be analysed and adjusted accordingly. A useful analytical approach to help determine overall patterns of media buying is presented in Table 8.6. Marketers can analyse the proportion of the promotional budget that is spent on different channels and then compare this with the contribution from customers who purchase that originated using the original channel. This type of analysis, reported by Hoffman and Novak (2000), requires two different types of marketing

Tagging research. First, tagging of customers can be used. We can monitor, using cookies, the numbers of customers who are referred to a web site through a particular online technique such as search engines, affiliate or banner ads, and then track the money they spend on purchases. Secondly, for other promotional techniques, tagging will not be practical. For word-of-mouth referrals, we would have to extrapolate the amount of spend for these customers through traditional market research techniques such as questionnaires. The use of tagging enables much better feedback on the effectiveness of promotional techniques than is possible in traditional media, but it requires a large investment in tracking software to achieve it.